Apple denies App Store profit margin is 75% – claims to have no clue
9to5mac.comFor those claiming Apple should be able to calculate the App Store's profit margin - can you actually define how to do it?
As someone who qualified as an accountant over 15 years ago, it's not obvious to me how you would develop a meaningful allocation of costs.
I suspect this misunderstanding stems from the same thinking that leads people to believe the myth that Costco makes no profit on its physical products, only on memberships.
I assumed Apple's margin was 30%, the difference between what a user pays and what the developer receives. Am I missing something here?
You are assuming Apple is a reseller (whose revenue is the full price paid by the end buyer) rather than an agent (whose revenue is only their commission).Am I missing something here?You are also ignoring the app store's advertising revenue.
And you're assuming that it costs zero to run the app store.
>You are assuming Apple is a reseller (whose revenue is the full price paid by the end buyer) rather than an agent (whose revenue is only their commission).
This isn't an unreasonable assumption, especially considering the invoice for my last App Store purchase has an Apple address and tax identifier (VAT number). Apple is the merchant of record.
Apple should have costs they have to pay to maintain the store, vet apps, credit card transaction fees, etc…
Are you serious? What company doesn’t categorize labor and expenses, especially for capitalization and R&D purposes. There’s zero chance Apple doesn’t know. It’s 100% nonsense.
They know all the labor costs and revenue for each of their products. Every single one.
Zero chance Apple doesn’t categorize server allocation and assign those to budgets. Small companies do it.
So, the obvious answer is they’re lying. They’ve done it before, too. They’re doing it now.
The GP claims to be qualified as an accountant and gives a simple example of how this type of problem can have no clear answer.
Your rebuttal is simply “of course they know the answer”.
Is there any reason someone reading this thread should prefer your take over theirs?
Apple directly reported sales of "services" in the last reported quarter to be 24972M and cost of those sales to be 6485M. https://investor.apple.com/investor-relations/default.aspx
I am no expert, but that seems like a 74% margin on services, which would seem to include their "app store".
It is difficult for me to imagine that apple is somehow incapable of breaking those numbers down into smaller component categories.
Let's look at a few things that we know about Apple:
1. The first $1 trillion, $3 trillion and (soon to be) $4 trillion company. 2. Cancels or stops production of products that don't make money (VisionPro being the latest). 3. Spent over half a trillion dollars in stock buybacks.
No company gets to the height Apple is currently without knowing every dollar coming in and going out.
I'm reminded of "if it don't make dollars, it don't make sense" chorus from DJ Quik's "Dollaz + Sense".
When I apply that to Apple (let alone any successful company for that matter), the claim that they don't know if the AppStore is profitable or not *defies belief*.
Schiller might not know exactly how much profit is generated, but to suggest that he's clueless whether or not on the WHOLE if the AppStore is profitable... If people believe that, I got a bunch of bridges up for sale.
Exactly. Considering how Schiller and other Apple executives straight up regularly lie to the engineering public, there's not a whole lot of mystery here.
Yeah, like Schiller isn't ever told about revenue and expenses at Apple. Please. What a joke.
Exactly. If they can't calculate it how do they know they're not losing money? If they know they're not losing money how do they know that?
> If they can't calculate it how do they know they're not losing money?
If they were losing money, what would they do? They probably can't raise their rates, since people are already very unhappy with their current rates, so it would be a hard sell given how much the company as a whole makes. They can't close the App Store, since it would flush their entire iPhone line down the toilet. Could they lower costs? Probably—cut back on reviewers, get rid of the promotional pages they create. I dunno.
Well, I claim to be a dog on the Internet, so there’s that.
But seriously, this ignores too many simple truths. Companies with even under $100 million in revenue categorize labor and other general expenses. Even full-time employees who don’t log their hours have them tracked by entry-level management all over the U.S.
Why would one do this? To capitalize on software costs, apart from even hardware costs. Something Apple does regularly, and they have a history of sharing that information with shareholders.
So, the GP is talking out of his rear end. The obvious reason Apple doesn't want to share their margins is because every closed software ecosystem is absolutely screwing their developers. That’s why.
There isn’t a single company I’ve worked for in nearly 20 years that doesn’t assign department and project costs to employees, contractors, and ancillary workers. Each department and project also has its own materials expenditure reports.
All of them. Even the smallest companies do this. It’s such a naive claim to think otherwise. I have no idea why people here think the “integrated” argument holds up at Apple, either. Staff there absolutely have "App Store and related work" assigned to their employee profiles. Without a doubt. Even their hiring roles don’t hire general software engineers; each role is preassigned to a specific department or project.
They wouldn't be a very good dragon if they couldn't account for each gold piece they were hoarding
I agree. It's not possible to do.
But that being said, if the AppStore were somehow spun off into a separate company, I think their costs would be less than 10% or even 5% of the cut that Apple takes from the AppStore sales. I'm sure I could run it at those costs.
Still, it's fair for Apple to want the cut they take from the App store revenues. I totally get their position. They built a great product and platform. They deserve to reap the rewards.
> I'm sure I could run it at those costs.
Are you counting the surely enormous amount you would have to pay Apple for the privilege of being the App Store?
The 'somehow' assumes we have some way of deciding which costs should be borne by this separate entity. But we've already agreed that's not possible!But that being said, if the AppStore were somehow spun off into a separate company
It is difficult for me to believe Apple doesn't have a pretty good idea what the profit margin for the App Store is.
When they say that the profit margin isn't 75-78%, I assume that's because it's 79% or more.
The App Store is dependent on the OS. The OS is dependent on the hardware. Are you including the cost of API development, architecture, and hardware R&D into the probability of the app store.
Because that is what Apple is round-a-bout saying. That its such an integrated product, you can't tally the net revenue from one component and call it profit.
Right, they would have to define their parameters first, and there might be a margin of error. But then, that's true of every revenue number they track. And this probably is one of the most important sources of revenue they have. So, I just try unsuccessfully to imagine a scenario where an executive says "I guess we'll never know if revenue is going up or down, c'est la vie!"
Realistically, it's not fair to put many of the costs of iOS development on the App store. They would need to do it anyway. And if there were no App store, they would still be designing their product as a collection of independent apps. That's what MacOS is anyway. So they would still need to build all of the features for supporting apps into iOS, even if they never allowed any outside apps.
> And if there were no App store, they would still be designing their product as a collection of independent apps. That's what MacOS is anyway.
MacOS yes, but if they were just shipping a phone with built in applications it would look quite a lot different I'd imagine.
Do you really believe that Tim Cook doesn’t know the profit margin on a key Apple product?
How much "profit" does the app store need to pay back to all the api development that powers the apps under the hood?
Similar to the amazon dont make a profit for a decade by dumping it into growth, Apple can dump all their app store "profit" into developing new api's that apps can access, such as ai tools etc.
Apple is quite large, so I suspect they don’t exactly use the same strategy as Amazon did in its early days. It also wouldn’t be profit, because that would be an expense they would keep track of.
People lie all the time under oath, they only need to be sure they wouldn't get caught in first place.
Folks are so naive.
I never understood the practice of it. It makes no sense to me.
A leftover from cultures where everyone supposedly always does the right thing.
Supposedly. :P
I think it was always naive.
> Senior company execs wouldn’t lie about it under oath,
ahahahahahahahah
I thought Chief Financial Officers were supposed to be good at financials.
Do they also have to be good at perjury?
Is that FAANG job interview analogous to the one for software engineers?
"Can you go to the whiteboard, and perform for me one of the standard case studies of CFOs who got away with perjury? Which you should have memorized, even if you learned nothing else in school."
"Using STAR format, tell me about a time that you lied about financials, and got away with it."
"OK, in the 3 minutes left, I want to turn this over to you, for any questions you have. ... Oh, if you have experience working with financials, normally people mention that in the Hobbies section of their resume; here at Faang, our interviews focus instead on the fundamentals."
"we make so much we can't even count it anymore" -Apple Apple pretending they don't have accountants or data analysts.
Doesn't courts have the power to ask Apple to actually calculate this number and give the supporting evidence about that? Because judges are not robots and understand that it is really Apple doesn't want to know the number so that it doesn't have to disclose the margin. This is probably not the first a time a company trying this tactic in court. It would be surprising (for me) if not.
How could they calculate this if they weren't tracking it?
The cost would need to included not just development hours that have gone into creating and maintaining the system, but hours of other employee's used for the project. Also the servers, the network, buildings, etc.
If there were forced to calculate this number, it wouldn't surprise me if they were able to do so in a manner that shows they lose money. At best they could be forced to track the cost going forward using a third party auditor.
> If there were forced to calculate this number, it wouldn't surprise me if they were able to do so in a manner that shows they lose money
That's why a court would ask for the procedures that they followed and revise if they did something like that intentionally. This would be the definition of malicious compliance.
It isn't hard. It is basic managerial accounting. You just need access to lots of internal data. Ultimate parent level GAAP accounting won't provide the specific details you need. Apple definitely knows what the number is, every 10k they won't shut up about how much growth is coming from services.
I typically don’t argue in favor of big corporations but I believe them, kind of. Apple includes a lot of things into their SDKs for free, which are paid on Google's platform. For example Apple Maps, Apple Weather, etc. components are all free and can be extremely expensive on Android (Google charging per view for Google Maps, for example). That is of course if you use these things in your app.
they could still calculate their profit margin: cost to build all their free SDK / profit from app store. Seems quite simple. Why would you believe them that they are not able to perform this calculation?
For all of those claiming that of course they know, because big companies always know exactly how much everything they do is worth:
1. Do you think your employer can calculate the profit margin on what you do? I sincerely doubt it, unless maybe you work in sales or something.
2. How would you calculate the value of HN to YC?
3. How would you calculate the value of iMessage? It has no direct revenue, but it has a huge effect on other revenue. How much though?
Similar to protections against usury, we need laws to prevent this sort of abusive revenue split.
I'd say a hard limit like 10% for digital download stores (app store, google play, steam, ...), and 20% for streaming sites (youtube, twitch, ...)
Perhaps it's 74% or 76%.
They're so happy they can hardly count
Taking these positions is a foolish risk. Such obvious disingenuous behaviour may be rewarded in the US but judicial systems in other countries may take a dim view of this sort of obvious obfuscation. The judge could appoint a forensic accounting firm to get full access to their financial records system and calculate the profitability.They will surely find some report to management in the system reporting profitability at which point there's a perjury and contempt of court charge risk. They need less arrogant lawyers :-)
Umm good for Apple? They produce a service that people want. 3rd parties are making loads of money off of it. Its win win all around.